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TIGTA: Identity theft protection needs improvements

In an audit, the Treasury Inspector General for Tax Administration
(TIGTA) found that the IRS has greatly improved its identity theft
protection program since the 2012 filing season but that additional
changes should be made (The Taxpayer Protection Program Improves
Identity Theft Detection; However, Case Processing Controls Need to
Be Improved, TIGTA
Rep't No. 2013-40-062 (June 21, 2013)). The report looked at the
program controls used to process suspected cases, not at the adequacy
of IRS filters in identifying potential tax identity theft fraudulent
refund claims, which will be the subject of a separate TIGTA review.

Improvements noted. TIGTA found that the Taxpayer
Protection Program improves identity theft detection and that the
improvements made since the 2012 filing season helped even more. In
2012, the program identified 324,670 tax returns involving identity
theft and prevented the issuance of fraudulent tax refunds totaling
$2.2 billion. During the 2012 filing season (for 2011 returns), only
10 employees were assigned to answer the toll-free telephone hotline,
and as a result, only 24% of the calls to the number reached an
employee. For the 2013 filing season, responsibility to answer the
toll-free number was transferred to the Wage and Investment Division’s
Accounts Management function, where more than 200 employees answered
the phones.

Other improvements were the development of clear guidelines for
employees in working potential identity theft cases. TIGTA interviewed
a number of IRS employees, all of whom said the guidelines were
helpful and that management listened to their suggestions for
improvement.

Shortcomings. Under the program, the IRS mailed
375,742 letters to taxpayers during calendar 2012 asking the taxpayer
to verify that he or she filed the return. If a letter in such cases
is returned as undeliverable, there is no response, or the tax return
is determined to involve identity theft, the IRS does not process the
return and places an identity theft indicator on the return. However,
TIGTA found that required identity theft indicators were not always
placed on taxpayer accounts because Taxpayer Protection Program
employees did not consistently follow procedures to input these
indicators and because the format for entering information was not
consistent, resulting in mismatched taxpayer identification numbers
(TINs).

The second shortcoming was that employees in the Taxpayer Protection
Program were not updating the central IRS Account Management Services
(AMS) system with the actions they had taken on taxpayers’ identity
theft accounts. TIGTA explained that it was crucial that employees
accurately update the AMS system because managers use it to identify
the inventory of open and closed cases and to review casework.

Third, TIGTA found that the IRS had not established procedures to
track how long identity theft cases took to resolve. The IRS claimed
that it took an average of 15 minutes from the time a taxpayer placed
a telephone call to resolve cases, but TIGTA noted that this did not
account for taxpayer attempts to contact the IRS by mail, pointing
specifically to taxpayer letters that had not been assigned to an
employee in the three months after they were received.

The final criticism was the lack of documentation of training that
Taxpayer Protection Program employees had received. The IRS provided
TIGTA with a list of the employees who had received the training, but
it kept no other records and did not require training to be documented
in the Enterprise Learning Management System, the IRS’s centralized
storage location for employee training records.

Recommendations. TIGTA made four recommendations to
address these shortcomings, all of which the IRS agreed to implement:

Develop a process to ensure that required identity theft
indicators are placed on taxpayer accounts;

Develop a process to ensure that employees are properly updating
the AMS system with the actions they have taken on identity theft
cases;

Develop a system to measure how long it takes to resolve cases and
ensure the measurement begins at the first taxpayer contact;

Ensure that employees receive the required training and that
records are kept in the Enterprise Learning Management System.

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